Bristol's patent woes persist despite Amylin buy

2012-07-023

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résumén">Bristol-Myers Squibb Co stands to become a stronger player in diabetes through its expensive acquisition of Amylin Pharmaceuticals Inc but its earnings and pricy shares remain vulnerable to the loss of its two biggest drugs. Bristol announced a

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n">Bristol-Myers Squibb Co stands to become a stronger player in diabetes through its expensive acquisition of Amylin Pharmaceuticals Inc but its earnings and pricy shares remain vulnerable to the loss of its two biggest drugs.

Bristol announced a $5.3 billion deal for Amylin late on Friday, teaming up with AstraZeneca Plc to make the purchase through an unusually structured deal. The companies are paying a 101 percent premium to Amylin's share price in late March, before the initial reports that Bristol was bidding for the company.

"It is higher than what we believe Amylin is worth on a standalone basis," Morningstar analyst Damien Conover said. "However, when you layer in these products to these Big Pharma firms it really offers a lot of opportunity for cost savings."

Bristol lost U.S. patent protection in May on Plavix, its $7 billion-a-year blood-clot preventer, paving the way for cheap generics to erode sales. The company will suffer another blow in 2015, when it cedes rights to its $2.5 billion-a-year Abilify anti-psychotic.

"They lose their two biggest products over the next four years," MKM Partners analyst Jon LeCroy said. "They need as many new things as possible to fill that in."

Even with Amylin's sales, LeCroy estimates Bristol's revenue will fall by at least $1 billion next year, due largely to the Plavix loss.

Bristol shares were off 0.2 percent to $35.87 on Monday, the first trading day since announcing the $31-a-share deal for Amylin. Amylin rose 8.9 percent to $30.70.

Amylin sells two main diabetes treatments, Byetta and a new, longer-acting version called Bydureon that is expected to be the bigger seller going forward.

Bristol historically has been a significant player in diabetes -- it sold the older, widely used medicine Glucophage, also known as metformin -- and has two other medicines in different categories than Byetta and Bydureon, making them potentially complementary. But Bristol's more recent diabetes products have struggled.

The company, along with Astra, sells a pill called Onglyza that has failed to register substantial sales due to competition from a rival product from Merck & Co. A second medicine developed with Astra, dapagliflozin, has faced regulatory delays in the United States.

JP Morgan analyst Chris Schott said Byetta and Bydureon need to reach $1.5 billion to $2 billion in peak sales to justify the transaction, though he notes that target is "not out of the question."

Amylin posted $517.7 million in Byetta sales last year, and $6.9 million in first-quarter sales for Bydureon, which was just approved in January.

On a conference call with analysts on Monday, Bristol executives said that while Amylin's sales force had targeted endocrinologists, the combined sales forces of the three companies would be able to widen their presence to cover primary care physicians.

Bristol also touted Bydureon's place as a therapy that only needs to be taken once a week.

MKM analyst LeCroy said the transaction was one of the most expensive mid-cap biotech deals on record -- about 10.4 times estimated sales.

"For a company with almost no pipeline, we feel this was extremely expensive," LeCroy said. "Other companies have been sold in the 4-to-6 times range."

Atlantic Equities analyst Richard Purkiss said the Amylin acquisition fits into Bristol's message to Wall Street that next year will be a low point for the company's profits

"At least in part, what they're trying to achieve is smooth out the mid-decade earnings difficulty," Purkiss said. "This goes some of the way."

At 19.8 times next year's expected earnings, Bristol's shares trade at a 60 percent premium to its U.S. pharmaceutical peers, according to LeCroy.

The stock is benefiting from the promise of new drugs such as its Yervoy melanoma treatment, and experimental medicines such as its Eliquis blood-clot preventer, which suffered a surprising U.S. delay last week.

"When a company gets this expensive relative to its peers, longer term it sets them up for disappointment," said LeCroy, who rates the shares a "sell." "The company has to do everything perfectly, or at least close to it." (Editing by Phil Berlowitz)

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